For the past three years, I’ve taught the Junior Achievement personal finance course to one of Ms. Turner’s economics classes at Keller High School. In the very first session each semester we talk about the concept of Pay Yourself First. It’s an idea the high school seniors easily embrace as they plan their mock monthly budgets with savings, rent, transportation, groceries, and other expenses. They “get” the concept of putting their savings aside first before they pay any other bills or spend any other money.
But paying yourself first is something that sometimes as adults we tend to forget. For many of us, we have some retirement savings on auto-pilot through an employer retirement plan. But additional savings toward retirement or other goals is often an after-thought with anything that’s left over at the end of the month. And so we fall into patterns where we have lists of things we’d like to do “some day” or “when we have some extra money.” The lists may include starting to save for children’s college, finding out if the money going into the 401(k) is enough, setting aside funds for that bucket-list vacation with the grandkids, or something else. And months or years can go by with “some day” never arriving.
If we remind ourselves of the advice the Keller high school seniors so easily adopt – pay yourself first — our goals can come to fruition quickly.
So, where to start? There’s one necessity for everyone – a cash reserve. If you already have one, great. If not, this should be your first pay-yourself-first project. Pick an amount to set aside first whenever you receive monthly income — whether it’s a paycheck, a draw from a business, social security, or any other source of income. Make it enough to be substantial in progress toward your goal, but not so much that it will choke the rest of your monthly budget.
The second necessity for everyone is retirement. If you’re not on track with your retirement savings (or you’re not sure), defining this goal and beginning and/or expanding your regular savings towards it is a must. There are lots of tax efficient ways to make your savings dollars go far with retirement.
After the cash reserve and retirement goals, I would suggest adding at least one other goal that’s important to you to the pay-yourself-first list. Pick a goal that matches your priorities and reflects something or someone important to you – this will give you that feeling of happiness and satisfaction each month as you set the funds aside. And it will make is easier later in the month when you may need to forego another expenditure because the funds are already spoken for.
And then take pride in your progress toward your goals, and celebrate when you reach one of your pay-yourself-first milestones.
Helping individuals and families set and achieve goals that are important to them is one of the ways Keener Financial Planning helps clients. We bring the analytical tools, financial planning knowledge, and a goal-oriented framework to support clients in making smart decisions confidently and achieving goals consistently. If you’d like to discuss how we might be able to help you, please call us at 817-993-0401 to schedule a complimentary initial consultation.